Barclays PLC is being sued by Eric Schneiderman, New York state attorney general, on charges of building its dark-pool trading business on false claims and fraud, favoring high-frequency traders.
The lawsuit, filed Wednesday in New York State Supreme Court, alleges Barclays increased the market share of its dark pool through false statements to clients and investors about how, and for whose benefit, the bank operates its dark pool.
Barclays’ shares trading on the NYSE were hit hard one day after the lawsuit was filed. The bank’s stock closed Thursday at $14.55, down 7.38%, after reaching a 52-week low of $14.38 early in the session one day after the lawsuit was filed. Also Thursday, Bloomberg News reported that money managers and brokers were shunning Barclays dark pool as a result of the New York state lawsuit.
“The facts alleged in our complaint show that Barclays demonstrated a disturbing disregard for its investors in a systematic pattern of fraud and deceit,” Mr. Schneiderman said in a news release. “Barclays grew its dark pool by telling investors they were diving into safe waters. According to the lawsuit, Barclays’ dark pool was full of predators — there at Barclays’ invitation.”
The lawsuit claims Barclays never prohibited any trades in its dark pool, despite assuring clients that its liquidity profiling system would root out and ban predatory traders, and “overrode” certain liquidity profiling ratings — including for its own internal trading desks that engaged in high-frequency trading — by assigning them safe ratings.
“We take these allegations very seriously,” said Mark Lane, Barclays spokesman. “Barclays has been cooperating with the New York attorney general and the SEC and has been examining this matter internally.”
In October, Mr. Schneiderman said his office was investigating several high-frequency trading organizations that gain advantages by receiving market information early, referring to the investigations as “Insider Trading 2.0.”